RPT-ANALYSIS-What's at stake for Vijay Mallya if Kingfisher fails?

(Repeats story with no changes to text)

By Swati Pandey and Tony Munroe

MUMBAI, July 30 (Reuters) - If Indian liquor baron Vijay
Mallya's Kingfisher Airlines fails, lenders owed $1.4
billion may end up with a small stake in his spirits business, a
modest office building, the carrier's brand, and not a lot else.

A $16 million beachfront villa in Goa, where Mallya throws
parties and shoots his Kingfisher swimsuit calendar, is owned by
his UB Holdings Ltd (UBHL) and pledged as collateral
to State Bank of India, Kingfisher's lead bank. But
Mallya's UB Group wants to swap the villa for another asset and
says it has the right to do so. SBI is resisting.

Through interviews with bankers, lawyers, and others in the
financial industry, as well as information provided by the
company and publicly available data, Reuters has pieced together
what parts of Mallya's empire are at risk if Kingfisher falls.

The airline was launched seven years ago by Mallya, who is
known as the "King of Good Times" for his flamboyant lifestyle
and often referred to as India's Richard Branson.

While Kingfisher has never made a profit, it grew quickly to
become India's No.2 airline by domestic market share. It has
since been knocked back to sixth, crippled by high debt and
fierce competition.

Banks have guarantees of more than $1.2 billion from Mallya
and his holding company, but collecting on them could prove
difficult, and most of Mallya's lenders, mainly state banks,
would pursue that only as a last resort, people familiar with
the matter said.

No shares or other assets were directly pledged to banks
against specific loans, according to Kingfisher.

"There is no security to fall back upon," said Sharad
Bhatia, CEO of Phoenix Asset Reconstruction Co, a distressed
debt investor backed by Kotak Mahindra Bank that does
not have exposure to Kingfisher but is familiar with the matter.

"Ultimately, banks will have to take a haircut," he said.

After cancelling thousands of flights late last year,
cash-strapped Kingfisher has grounded most of its fleet and is
desperately awaiting a rule change to allow investments by
foreign airlines, although none has publicly expressed interest.

Mallya's UB Group includes Kingfisher, United Breweries
, United Spirits Ltd and UB Holdings.

Kingfisher's woes have prompted speculation that British
rival Diageo will make a play for United Spirits while
Heineken goes after United Breweries.

United Breweries, Mallya's crown jewel, does not have direct
exposure to the airline or its creditors.

If the politically powerful Mallya were forced to sell some
of his shares in the maker of Kingfisher beer, he could remain
in the controlling shareholder group alongside Heineken
, which has an equal stake, given the value he brings
in a heavily regulated Indian alcohol industry.

United Spirits, the other big listed company in Mallya's
stable, could also be hard for Kingfisher's creditors to prise
away against his will. Of Mallya's 28 percent of United Spirits,
the world's biggest liquor maker by volume, part of the 18
percent held by holding company UBHL is pledged to lenders that
funded its $1.2 billion 2007 acquisition of Scottish spirits
maker Whyte and Mackay.

The UB Group says it does not see a risk to Mallya's empire.

"Since there are no shares pledged except the 4 percent of
USL (United Spirits) there is no risk of Vijay Mallya losing
control over any listed company," Prakash Mirpuri, a group
spokesman, told Reuters in an email.

'THE CENTRAL PIECE'

Banks are putting pressure on Mallya by moving to sell the
Bombay House office building near Mumbai's airport, worth
roughly $9 million, and the villa.

The Kingfisher Airlines brand was valued at 41 billion
rupees ($743 million) in 2010 and is now worth 25 billion
rupees, one lender said. It is worth less to anyone other than
Mallya, 57, who named the carrier after his flagship beer in a
country that bans alcohol advertising.

"Selling off a brand, valuing it, is not an exercise that
has happened before so we want to start with something that we
understand first," said a senior executive with one of
Kingfisher's lenders. "We have already started the process of
liquidating the securities, the tangible ones - Goa villa and
Bombay House. That will begin to hurt Mallya," he said.

UBHL has guarantees of more than 67 billion rupees to banks
and about 22 billion rupees to aircraft lessors on behalf of
Kingfisher, according to a note by UBHL's auditors in May, but
the true value of those guarantees is difficult to ascertain.
Unlike collateral, guarantees are not tied to specific assets.

Mallya, who also owns a cricket franchise and last year sold
a 42.5 percent stake in his Formula One racing team to India's
Sahara group, has given a $50 million personal guarantee.

"When we do our valuation, we practically don't give much
value to guarantees unless it is a government guarantee."

Until February, Kingfisher was a subsidiary of UBHL, a
holding company controlled by Mallya and described as "the
central piece that holds it all together" on the cover of its
annual report for the financial year that ended in March 2011.

The airline stopped being a subsidiary when part of
Kingfisher's debt was converted into shares.

"Nobody can assume that UBHL will automatically be called
upon to pay 100 percent of KFA's debts. There are procedures to
be followed to establish the net amount if the need arises.
Besides UBHL has several counter claims against KFA suppliers,"
group spokesman Mirpuri said.

UBHL has a market value of just under $100 million and had
liabilities of about $2.58 billion, more than three times its
assets, according to Thomson Reuters data as of March 31, 2011,
when its biggest asset was Kingfisher, which is worth less now.

"Invoking guarantees is not a simple process that you invoke
today and you get a cheque tomorrow. It's a long process - a
year or forever. You never know," said a source familiar with
the matter, declining to be identified given the sensitivity.

TAKEOVER TALK

Diageo held talks that collapsed in May 2009 to buy a
minority stake in United Spirits, and typically invests in
businesses that it can eventually control.

Heineken is engaged in a takeover battle for Singapore's
Asia Pacific Breweries. Sources said in March that
Mallya was considering selling part of his stake in United
Breweries to Heineken.

Neither Diageo nor Heineken is currently in talks with the
UB Group, according to people familiar with the matter.

Both Diageo and Heineken declined to comment.

"UBHL has no plans to sell its holdings in UBL (United
Breweries) and USL (United Spirits)," Mirpuri said.

Mallya and Heineken each own 37.5 percent of United
Breweries. If Kingfisher's banks called in UBHL's guarantee,
UBHL may be forced to sell its 11.5 percent of United Breweries.
That would still leave Mallya with 26 percent, a board seat and
a say in management decisions, unless Heineken tried to force
him out, something it appears unlikely to do.

"Dr Vijay Mallya provides significant added value as an
ambassador for the industry's interests and is a member of
Indian parliament," Heineken said in a December presentation.

The Mallya team's view is unequivocal.

"There is no question of Heineken acquiring any additional
stakes in UBL," Mirpuri said.

Kingfisher's lenders are mostly state banks, and many
frustrated bankers appear resigned to recovering as little as
$25-$30 million, at least in the near term.

India does not have a formal bankruptcy process. Instead,
banks typically extend more credit to tide big customers like
Mallya through tough times. It is rare for Indian banks,
especially state lenders, to force a liquidation, and rarer
still for a big Indian company like Kingfisher to collapse.

"Indian banks don't pull the plug. I think that's really
sort of the bottom line here, unless they're really pushed to
do," said Ashwin Ramanathan, a partner at law firm AZB &
Partners in Mumbai.
($1 = 55.2150 Indian rupees)
(Additional reporting by David Jones in LONDON and Anurag
Kotoky in NEW DELHI; Editing by Emily Kaiser and Alex
Richardson)

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